42
Stock option activity under the Company’s stock option plans for the year ended January 2, 2015 is summarized as follows:
A summary of the Company’s stock option activity for the years ended December 27, 2013 and December 28, 2012 was as follows:
December 27, 2013 December 28, 2012
Option Shares
(1) Includes 2,916,563 of unvested performance-based stock options granted in 2012 and subsequently surrendered and replaced with SARs in 2013 and 470,000 vested stock options surrendered in 2013 and replaced with SARs. See SARs discussion below.
The fair value of the SARs and stock options is estimated using the Black-Scholes option pricing valuation model. The determination of fair value is affected by the Company's stock price, expected stock price volatility, expected term of the award and the risk-free rate of interest. The weighted average fair value of the stock options granted in 2012 was $1.31. The following assumptions were used to determine the fair value of the stock options granted to employees in 2012:
Expected volatility 43%
Risk-free rate 0.35%
Expected term (in years) 2-6
Other information pertaining to stock option activity during the years ended January 2, 2015, December 27, 2013 and December 28, 2012 was as follows (in thousands):
Year Ended
January 2, 2015 December 27, 2013 December 28, 2012
Total intrinsic value of stock options exercised $ 36 $ 163 $ 177
The following table summarizes information about the Company’s stock options outstanding:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Stock Based Compensation (Continued)
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On February 8, 2012, the Compensation Committee approved the fiscal year 2012 through 2015 equity compensation target for the Chief Executive Officer and Chief Operating Officer. Under this target, a single performance-based option grant was made to the Company’s Chief Executive Officer and the Chief Operating Officer of 1,912,500 options and 1,004,063 options, respectively, totaling 2,916,563 options, each with an exercise price of $4.00 and a fair value of $1.31. One-half of the options vest upon the achievement of at least 50% growth of pro forma earnings per share and the remaining half vest upon the achievement of at least 50%
pro forma EBITDA growth. Each metric can be achieved at any time during the six-year term of the award based on a trailing twelve month period measured quarterly. The grants will expire if neither target is achieved during the six-year term. The base year for the performance calculation is fiscal 2011 for both pro forma earnings per share and pro forma EBITDA performance targets.
In March of 2013, the performance-based stock option grants were surrendered by the Company’s Chief Executive Officer and Chief Operating Officer and replaced with SARs, totaling 2,916,563, equal in number to the number of options granted to each of them in 2012. The terms and conditions and the specific performance targets that must be achieved in order for the SARs to vest are the same as those of the surrendered options, with the exception that the SARs will be settled in cash, stock or any combination thereof, at the Company’s discretion.
In addition, 470,000 vested stock options were surrendered and replaced with SARs with an extended life during 2013.
Subsequently, in 2014, the extended life of the SARS was rescinded and the SARS expired unexercised.
SAR activity for the year ended January 2, 2015 was as follows:
The following assumptions were used to determine the fair value of the SARs granted to employees in 2013:
Expected volatility 43%
Risk-free rate 0.35%
Expected term (in years) 2
As of January 2, 2015, 100% of total outstanding options and SARs were performance-based. The Company has recorded $0.5 million of compensation expense in 2014 and 2013 and $0.6 million in 2012, related to these options and SARs in accordance with ASC 718, "Stock Compensation".
Restricted Stock Units
Under the stock plans, participants may be granted restricted stock units, each of which represents a conditional right to receive a common share in the future. The restricted stock units granted under this plan generally vest over one of the following vesting schedules: (1) a four-year period, with 50% vesting on the second anniversary and 25% of the shares vesting on the third and fourth anniversaries of the grant date, (2) a four-year period, with 25% vesting on the first, second, third and fourth anniversary, or (3) a three-year period with 33% vesting on the first, second and third anniversary. Upon vesting, the restricted stock units will convert into an equivalent number of shares of common stock. The amount of expense relating to the restricted stock units is based on the closing market price of the Company’s common stock on the date of grant and is amortized on a straight-line basis over the applicable requisite service period. Restricted stock unit activity for the year ended January 2, 2015, was as follows:
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Stock Based Compensation (Continued)
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The Company recorded restricted stock units based compensation expense of $5.0 million, $4.8 million and $4.2 million in 2014, 2013 and 2012, respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock units and the fair market value of the stock on the grant date. As of January 2, 2015, there was $6.5 million of total restricted stock units compensation related to the nonvested awards not yet recognized, which is expected to be recognized over a weighted average period of 1.94 years.
Common Stock Subject to Vesting Requirements
Shares of common stock subject to vesting requirements were issued to employees of acquired companies. These shares vest over a period of up to five years. Compensation was based on the market value of the Company’s common stock at the time of grant and is recognized on a straight-line basis. The activity for common stock subject to vesting requirements for the year ended January 2, 2015 was as follows:
The Company recorded compensation expense of $0.9 million, $0.8 million and $0.7 million, during the years ended January 2, 2015, December 27, 2013 and December 28, 2012, respectively, related to common stock subject to vesting requirements. As of January 2, 2015, there was $1.0 million of total stock based compensation related to granted common stock subject to vesting requirements not yet recognized, which is expected to be recognized over a weighted average period of 3.0 years.
Common stock subject to vesting requirements of $4.6 million will be issued in 2015 in relation to the equity portion of the Technolab earn-out. These shares will be subject to a four year vesting period. Compensation expense of $0.7 million was recorded in 2014 for these shares.
12. Shareholders’ Equity Tender Offer
On August 28, 2013, the Company announced a tender offer to purchase up to $35.75 million in value of shares of its common stock, $0.001 par value per share, at a price not greater than $6.50 nor less than $5.75 per share, to the seller in cash, less any
applicable withholding taxes and without interest (the "Offer"). On September 26, 2013, the Company amended the Offer (the
"Amended Offer") to increase the price range at which it would purchase its common stock to a range of not greater than $7.00 nor less than $6.50 per share and to decrease the dollar amount of the Offer to $25.0 million. The Amended Offer was completed on October 15, 2013, with the Company purchasing approximately 1.0 million shares of its common stock at a purchase price of $7.00 per share, for an aggregate cost of approximately $6.9 million, excluding fees and expenses related to the Amended Offer. The 1.0 million shares represented approximately 3% of the Company's issued and outstanding shares of common stock at that time. The Company financed the Amended Offer from borrowings under the Amended Term Loan under its existing Credit Facility. See Note 9 for further detail.
On March 21, 2012, the Company completed a tender offer to purchase 11.0 million shares of its common stock at a purchase price of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses relating to the tender offer.
The 11.0 million shares accepted for purchase represented approximately 27% of the Company’s issued and outstanding shares of common stock at that time.
Employee Stock Purchase Plan
Effective July 1, 1998, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed three months of service as of the beginning of an offering period an opportunity to purchase shares of its common stock through payroll deductions. Purchases on any one grant are limited to 10% of eligible compensation. Shares of the Company’s common stock may be purchased by employees at six-month intervals at 95% of the fair market value on the last trading day of each six-month period. The aggregate fair market value, determined as of the first trading date of the offering period, of shares purchased by an employee may not exceed $25,000 annually. The Employee Stock Purchase Plan expires on July 1, 2018. A total of 4,275,000 shares of common stock are available for purchase under the plan with a limit of 400,000 shares of common stock to be issued per offering period. For plan years 2014, 2013 and 2012, 94,333 shares, 113,905 shares and 117,757 shares, respectively, were issued.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS